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Govt raises Rs59.4bln through PIBs

By Our Correspondent
February 05, 2020

KARACHI: The government on Tuesday raised Rs59.4 billion through the auction of Pakistan Investment Bonds (PIBs), while the cut-off yields increased on all tenors following higher than expected inflation numbers for January, State Bank of Pakistan data showed.

The auction saw a participation of Rs127 billion, while the pre-auction target was Rs100 billion. The cut-off yield for three-year PIBs increased 30 basis points to 12.05 percent at which the government borrowed Rs19.6 billion.

Through five-year bonds, the government raised Rs29.6 billion at a cut-off yield of 11.40 percent, increasing from 11.19 percent in the previous auction. Meanwhile, 10-year PIBs fetched Rs10.2 billion at a yield of 11 percent, which rose 10 basis points compared to last auction.

Analysts said the yields on PIBs went up amid inflationary pressures. However, the government had slashed the cut-off rates in previous auctions due to high demand for these instruments from scheduled banks.

The massive increase in food prices has pushed the Consumer Price Index based inflation for January to 14.56 percent year-on-year from 12.6 percent in the previous month.

“Bank treasuries and fund managers had expected interest rates have peaked out. These expectations were also visible from the growing demand for longer tenor government papers in the primary market. Banks had locked in their available liquidity in long-term fixed-income assets,” said an analyst.

“But it looks that the SBP will keep the policy rate unchanged at 13.25 percent at the monetary policy review meeting scheduled for next month. However, the monetary easing is likely to start from May onwards,” he added.

The government heavily relies on commercial banks’ financing as it has committed not to borrow from the SBP to finance its deficit under the International Monetary Fund’s Extended Fund Facility programme.

Moreover, the commercial banks’ own appetite for investing in government papers remained strong. “In addition to the market’s view on interest rates, banks’ expectations of subdued future supplies of long-term bonds, further strengthened the demand for these instruments,” the SBP said in its first quarterly report.

“Specifically, with the improvement in tax collection and the overall fiscal position, along with estimates of higher external financing through the rest of the year, it was understandable for banks to anticipate a thin supply of PIBs in subsequent months.”